Most Borrowers to Get $1,000 or Less as Part of a $9.3 Billion Settlement Between U.S. and Banks

WASHINGTON—The vast majority of borrowers being compensated for mortgage-related abuses will get $1,000 or less apiece, a sobering coda to a protracted attempt to help those who may have been placed into foreclosure as a result of banks' mistakes.

About 4 million borrowers will share $3.6 billion in cash as part of a settlement between federal regulators and banks accused of foreclosure-processing mistakes. U.S. regulators said Tuesday that banks wrongfully took away homes from 1,082 borrowers who were members of the U.S. military. Another 53 borrowers were found to have lost their homes despite not actually defaulting on their loans. Those 1,135 individuals will receive checks of $125,000.

Most borrowers, however, will see far less, with about 80% receiving checks ranging from $300 to $1,000, according to data released by the Office of the Comptroller of the Currency and the Federal Reserve.

Because the foreclosure review was shut down by regulators, it isn't clear in many cases how badly the borrowers were wronged, if at all.

To Check Whether You Qualify

Rust Consulting Inc., is charged with distributing the settlement funds. Call Rust at 1-888-952-9105 to check if you're qualified for a payment and to ensure your contact information is up to date.

And even though banks compensated borrowers, they didn't acknowledge wrongdoing.

Bank regulators ordered an independent review of banks' foreclosure files in April 2011 to determine how many borrowers should be compensated for foreclosure mistakes. Earlier this year, the regulators and banks halted the review and reached a $9.3 billion settlement, saying the probe threatened to drag out indefinitely, with too much spent on consultants and not enough mistakes uncovered. The $9.3 billion settlement included $5.7 billion in noncash assistance and $3.6 billion in cash payments.

As The Wall Street Journal reported last month, some of the country's biggest banks were on pace to find a higher rate of past foreclosure errors than regulators disclosed when they stopped the reviews. Last week, a federal watchdog faulted the bank regulators for a flawed review of those foreclosure documents.

ENLARGE

About eight in 10 home-loan borrowers who qualified for a federal review of their foreclosure cases are set to get $1,000 or less in the coming weeks. The Phoenix area was particularly hard-hit by the housing crash.
Associated Press

Disparities in the process can be seen in the payouts awarded to borrowers. The bank regulators allowed consumers to ask for a review of their foreclosure files. About 439,000 of those getting payments under the settlement did so. Because they came forward, in most cases those borrowers will be paid twice as much as those who didn't seek a review.

Those who qualified for the smallest payments include many who lost their homes but weren't offered help by banks or were placed into foreclosure despite asking for assistance. There is no legal requirement for banks to provide loan assistance but many publicly pledged to do so as the foreclosure crisis intensified.

Critics say consumers who lost their homes deserve a larger share of the payouts, and argue the settlement is weak punishment for banks who were widely faulted for doing too little to help consumers at the height of the foreclosure crisis.

"This is cold comfort for many folks who were harmed, especially those who qualified for modifications but didn't get them, and then lost their homes," said Alys Cohen, National Consumer Law Center staff attorney in Washington.

Those receiving payments don't relinquish their right to pursue individual lawsuits.

ENLARGE

The settlement will do little to repair the long-standing effects on consumers of being placed into foreclosure, such as damaged credit. Banks must notify credit bureaus independently about any changes to a borrower's credit history and aren't required to do so as part of the settlement with regulators.

Those affected by foreclosure mistakes questioned the fairness of the payouts. Eric Krasner, 52 years old, of Duluth, Ga., filed for bankruptcy before losing his Frederick, Md. house to foreclosure in 2010, a mistake that should mean a payment of $62,500 according to the regulators' compensation schedule. Mr. Krasner, who had a mortgage of $365,000, filed for bankruptcy after a gift shop he owned sunk under the weight of the recession and wound up losing his home.

If the "bulk of people get $500 or $800 after losing their houses, is that making good on things?" he said.

Others are more sanguine about the outcome. Stephanie Massengale, 50, of Chapel Hill, N.C. who said a bank began a foreclosure on her home despite her previously being in bankruptcy, was told Tuesday by the consulting firm administering the payouts that she qualified for a payout. Under the guidelines she likely will receive $7,500, which is enough for her to install a new air conditioning unit and turn the house into a rental property. "That's better than nothing," she said.

Beginning Friday, Rust Consulting Inc. will start sending payments to borrowers who were in foreclosure in 2009 and 2010, and consumers are expected to receive the final payments by mid-July.

The OCC said in a statement that it would "continue to monitor" the banks as they work to fix their mortgage servicing and foreclosure practices.

A Bank of America spokesman said "we are pleased payments to borrowers are being initiated so quickly under this new approach." A Citigroup spokesman said the bank is "pleased to support the OCC and its efforts of assistance to consumers who qualify for benefits from the agreement." A spokesman for J.P. Morgan and a Wells Fargo spokeswoman declined to comment.

Corrections & Amplifications An earlier version of this article incorrectly said that the vast majority of borrowers being compensated for mortgage-related abuses will get $1,000 or less apiece. They will get $1,000 or less.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.